Home-Buying Glossary

Amortization: under the conditions of your mortgage contract, this is the estimated amount of time it will take you to fully repay your mortgage, assuming you maintain equal payments throughout the lifetime of your loan.

Appraisal: An estimate of the value of the home. 

Appraiser: a qualified professional who conducts appraisals to determine the market value of a home. 

CMHC insurance: insurance, offered by the Canada Mortgage and Housing Corporation, that protects the lender if a borrower defaults on their mortgage obligations to the lender. CMHC insurance is mandatory for mortgages where the down payment on the house is between 5.00% (the minimum amount allowed) and 19.99%. The premium for the insurance policy ranges between 0.6% and 4.50% of the mortgage amount and can be paid at the time of purchase or added to the principal amount of your mortgage. The borrower is responsible for the insurance premiums.

Closed mortgage: a mortgage that cannot be paid off or renegotiated before the end of the term without the lender’s permission and a financial penalty. Some closed mortgages allow for extra or accelerated payments, but only if specified in the mortgage agreement. 

Closing costs: costs associated with finalizing the purchase of a home. Includes things like legal fees, transfer fees, disbursements and other costs. These are in addition to the down payment and the GST/PST/HST (if applicable). Closing costs are due on the day the buyer officially takes ownership of the home, and usually range from 1.5% to 4% of the purchase price. 

Closing date: the date when the sale of the property becomes final and the new owner takes possession of the home. 

Compound interest: Interest that is calculated on both the original principal and the interest that has already been earned (or “accrued”) on that principal. 

Conditional offer: an offer to purchase a home that includes one or more conditions (for example, a condition that the buyer can secure appropriate financing) that must be met before the sale can be officially completed. 

Condominium: a type of homeownership where people own the unit they live in and share ownership of all common areas (such as the gym) with the other owners. 

Conventional mortgage: a mortgage loan equal to or less than 80% of the value of a property. This means that the purchaser has a down payment of at least 20% of the purchase price of the home. Conventional mortgages generally do not require default insurance (e.g. CMHC insurance).

Counteroffer: if the seller rejects the buyer’s original offer, they often propose a counteroffer that changes some of the conditions in the original offer, such as the price or closing date. 

Credit bureau: a company that collects information from various sources on a person’s borrowing and bill-paying habits. They provide this information to lenders to help them assess whether or not to lend money to that person. 

Credit history (or “credit report”): the report provided by the credit bureau that helps lenders decide whether or not to the extent a person credit.

Curb appeal: how nice a home looks from the street (how attractive the landscaping is, etc.)

Deed: a legal document that transfers ownership of a home from the seller to the buyer. 

Default: failing to make a payment on time or to otherwise abide by the terms of a loan agreement. If borrowers default on their payments, their lender can charge a penalty or even take legal action to take possession of their home (foreclosure). 

Delinquency: failing to make a payment on time. 

Deposit: money that a buyer places in trust to show they are serious when they make an offer to purchase a home. The deposit is held in a trust account by the real estate agent’s brokerage or lawyer until the sale is complete, and then it’s transferred to the seller. 

Depreciation: a decrease in the value of a home.

Down payment: the portion of the home’s purchase price that is not financed by a mortgage loan. The buyer must pay the down payment from their own funds (or other eligible sources) before securing a mortgage. 

Equity: the cash value that a homeowner has in their home after subtracting any loans secured against the property (such as a mortgage or credit line). Equity generally increases over time as the mortgage loan is gradually paid off. Additionally, the housing market can have an impact on equity (i.e. appreciation/depreciation).

Fixed interest rate mortgage: a mortgage with a locked-in interest rate (the interest rate does not change during the term of the mortgage) 

Foreclosure: a legal process whereby the lender takes possession of a property if the borrower defaults on a loan. The lender then sells the property to cover the unpaid debt. 

Freehold: a form of homeownership where the homeowner buys the right to have full and exclusive ownership of a home and the land it sits on for an indefinite period. Freehold is in contrast to leasehold ownership, which gives the homeowner the right to use and occupy the land and building for only a limited defined period of time. 

Gross debt service (GDS) ratio: The percentage of a person or household’s gross monthly income that goes to pay the mortgage principal and interest, property taxes and heating costs, plus 50% of any condominium maintenance fees or 100% of the annual site lease for leasehold tenure if applicable. To qualify for a mortgage, the borrower’s GDS ratio must be at or below 32%. 

Gross monthly income: total monthly income of a person or household before taxes and other deductions. 

High-ratio mortgage: a mortgage loan for more than 80% of the value of a property. These mortgages usually require default insurance (e.g. CMHC insurance). 

Home inspection: an examination and assessment of a home’s state and condition by a qualified professional, including the examination of a home’s structural integrity and electrical systems. 

Home inspector: a professional who conducts home inspections. 

Home insurance: protects the owners in case their home or building is damaged or destroyed by fire or other hazards listed in the policy. Usually covers the owners’ belongings inside the home, as per their policy.

Insurance broker: a professional who can help a person choose and buy different types of insurances that suit their needs, such as property insurance, life and disability insurance, or car insurance. 

Interest: the cost of borrowing money. Interest is usually paid to the lender in regular installments along with repayment of the principal (the original amount of the loan).

Interest rate: the rate used to calculate how much a borrower has to pay a lender for the use of the money being loaned to them (usually expressed as a percentage).

Land registration: a system to record legal interests in land, including ownership and disposition of land. 

Land surveyor: a professional who surveys a property to provide a land survey. If the seller doesn’t have a survey, or if it’s more than five years old, the buyer will likely need to hire a surveyor before they can get a mortgage. A real estate agent usually helps coordinate the survey with the seller. 

Land transfer tax: a tax charged by many provinces and municipalities (usually a percentage of the purchase price) that the buyer must pay upon closing. 

Leasehold: a form of homeownership where the homeowner buys the right to have full and exclusive ownership of a home and the land it sits on for a defined period. Leasehold is in contrast to freehold ownership, which gives the homeowner the right to use and occupy the land and building for an indefinite period. 

Lender: an institution, such as a bank, trust company, credit union, etc. that loans people money. 

Lien: a claim against a property by another person or company for money owed by the owner or previous owner. 

Lump-sum pre-payment: an extra payment that is made to reduce the principal balance of a mortgage, with or without a penalty. Lump-sum payments can help borrowers save on interest costs and reduce their amortization (i.e. pay off your mortgage quicker!) 

Maturity date: the last day of the term of a mortgage. The mortgage loan must either be paid in full, renegotiated or renewed on this day. 

Mortgage: a loan given by a lender to a buyer to help with the purchase of a home or property. 

Mortgage Pre-approval (or “commitment letter”): a written notification from a lender to a borrower that says a mortgage loan of a specific amount is approved under specific terms and conditions. 

Mortgage broker: a professional who works with many different lenders to find a mortgage that best suits the needs of the borrower. 

Mortgage life insurance: protects the family of a borrower by paying off the mortgage if the borrower dies. 

Mortgage loan insurance: insurance that protects a lender against default on a mortgage. Mortgage loan insurance is provided by CMHC or a private company and is usually required for any mortgage where the down payment is less than 20% of the purchase price or lending value of a home. Mortgage loan insurance helps Canadians purchase homes earlier and at interest rates that are comparable to buyers with a larger down payment. 

Mortgage loan insurance premium: the amount homebuyers have to pay to CMHC or another insurer to insure their mortgage against. The CMHC premium is calculated as a percentage of the mortgage loan and is based on factors like the size and source of the down payment. In general, the smaller the down payment is, the higher the insurance premiums will be. Premiums can typically be paid separately or included in the regular mortgage payments to the lender. 

Mortgage payment: a regularly scheduled payment that usually includes both principal and interest. 

Mortgage term: the length of time that the conditions of a mortgage, such as the interest rate and payment schedule, are in effect. Terms are usually between 6 months and 10 years. At the end of the term, the mortgage loan must either be paid in full, renewed or renegotiated. 

Net worth: the difference between a person’s liabilities and assets. The total financial worth of a person.

New home warranty program: a program available in all provinces and some territories guaranteeing that any defects in a new home will be repaired at no cost to the buyer within the period covered by the warranty. 

Offer to purchase: a contract that sets out the terms and conditions under which a buyer agrees to buy a home. If the offer is accepted by the seller, it becomes a legally binding agreement. 

Ongoing costs: monthly expenses that come with owning a home, including mortgage payments, property taxes, home insurance, utilities, ongoing maintenance and repairs. 

Open house: a period of time when the public can look at a house or apartment that’s for sale without an appointment. 

Open mortgage: a flexible mortgage loan that lets a borrower pay off or renegotiate their loan at any time, without having to pay penalties. Due to the flexibility, open mortgages usually have a higher interest rate than closed mortgages. 

Payment schedule: the schedule a buyer agrees to follow to pay back their mortgage loan. In most schedules, mortgage payments are made weekly, biweekly or once a month. More frequent payments can help reduce your amortization, helping you pay off your mortgage quicker and saving you money by reducing the interest.

Power of sale: a provision that gives a lender the power to sell a property if the borrower defaults on their mortgage. The ownership of the property changes hands after the sale is completed. 

Pre-payment options: the ability to make extra payments, increase your payments or pay off your mortgage early without incurring a penalty. 

Pre-payment penalty: a fee charged by your lender if you pay more money on your mortgage than the pre-payment option allows. 

Principal: the initial amount borrowed (not including the interest). 

Property taxes: Taxes charged by the municipality based on the value of the home. In some cases, the lender will collect property taxes as part of the borrower’s mortgage payments and then pay the taxes to the municipality on the borrower’s behalf. 

The real estate agent (or “real estate broker”): a professional who acts as an intermediary between the seller and buyer of a property. They help the buyer find a home, make an offer and negotiate the best price. 

Reserve fund: a pool of money put aside by a condominium corporation for the repair or replacement of common elements such as the roof, windows, boiler, hallway carpets and other common assets and areas. 

Security: also called “collateral,” property that is pledged to guarantee a loan or other obligation that can be claimed by the lender if a loan isn’t repaid. With a mortgage, the property being purchased is used as security for the loan. 

Semi-detached home: a home that is attached to another home on one side. 

Single-detached home: a free-standing home (that is, not attached to any other homes on either side) intended to be occupied by a single-family. 

Status Certificate: a certificate that details the financial and legal status of a condominium corporation (not applicable in Quebec). 

Survey: a document that details the legal boundaries and measurements of a property, specifies the location of any buildings and states whether anyone else has the right to cross over the property for a specific purpose. 

Title: a document that gives the holder legal ownership of a property. 

Title insurance: insurance against losses or damages that could occur because of anything that affects the title to a property (for example, a defect in the title or any liens, encumbrances or servitudes registered against the legal title to a home). 

Total debt service (TDS) ratio: the percentage of a person or household’s gross monthly income that goes to pay the mortgage principal and interest, property taxes and heating costs, plus all other debt obligations such as car payments, personal loans or credit card debt. To qualify for a mortgage, the borrower’s TDS ratio must be at or below 40%. 

Townhouse: one of several similar single-family homes that are joined side by side and share common walls. 

Variable interest rate mortgage: this is an interest rate that is based on a lender’s Prime Rate. It is often expressed as “Prime +/- a percentage.” Generally, the “+/- a percentage” does not change – it is fixed. However, the Prime Rate may change during your mortgage term. This means you will have a higher interest rate in the event the Prime Rate rises, but you may also benefit from lower interest rates in the event the Prime Rate decreases.